Unlocking Shareholder Value Through REIT Conversion
September 26, 2014
Luis Sanchez luisvsanchez@gmail.com Capitalization Trading Multiples Equity Returns Market Cap $1,996 EV/LTM EBITDA 8.9x 1 Year (0.4%) Enterprise Value $3,106 EV/LTM Sales 2.5x 3 Years 35.9% Net Debt $1,109 Adj. FCF Yield 1 9.1% 5 Years 79.2% 20 30 40 50 60 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 1 Adj. FCF Yield = (Cash from Operations Maintenance Capex) / Market Cap Source: Company Filings, Capital IQ Situation Overview 2 Life Time Fitness (NYSE:LTM) (LTM or the Company) is a national operator of resort style gyms and sports facilities Operates 112 24-hour gyms in 29 markets Average gym size ~100,000 sq. ft., excluding pool areas 823,021 gym members Employs 22,500 people, including 15,000 part-time Founded in 1992 by current CEO Bahram Akradi 8/25/14 LTM announced it would explore a REIT conversion, hired financial advisors and adopted a shareholder rights plan to ensure it will meet REIT ownership requirements The announcement surprised the market because CEO Akradi has viewed the real estate ownership as a key strategic asset Analysts see a high probability of the conversion occurring as a spin-off of the real estate into a public REIT which would lease the space to the gym business in an OpCo/PropCo structure Company Overview REIT Conversion Equity Trading History Key Statistics LTM announces it is exploring a REIT conversion ($ in Millions) 2009 2010 2011 2012 2013 LTM Revenue $837 $913 $1,014 $1,127 $1,206 $1,246 Growth 8.8% 9.1% 11.0% 11.2% 7.0% 6.5% EBIT $149 $161 $173 $208 $225 $223 % Margin 17.8% 17.6% 17.1% 18.5% 18.6% 17.9% EBITDA $240 $253 $272 $323 $344 $349 % Margin 28.6% 27.7% 26.8% 28.7% 28.5% 28.1% Capex $147 $132 $165 $224 $349 $465 % Sales 17.5% 14.4% 16.3% 19.9% 28.9% 37.3% Gym Count 84 89 101 105 108 112 Sales / Gym 10.0 10.3 10.0 10.7 11.2 11.1 Members 628,938 682,858 768,860 787,003 789,490 823,021 Members / Gym 7,487 7,673 7,612 7,495 7,310 7,348 Bear Base Bull Value of OpCo $38.65 $32.00 $42.06 Value of PropCo N/A $37.98 $44.95 Sum-of-the-Parts $38.65 $69.98 $87.01 Current Share Price $51.06 $51.06 $51.06 Upside / (downside) (24%) 37% 70% Probability 20% 60% 20% Investment Thesis 3 LTM shares have risen 20% since the REIT exploration announcement. Despite this rise, there would still be 37% - 70% of upside remaining if the REIT spin occurs. Given the estimated 80% likelihood of a REIT spin, returns to shareholders at this point are asymmetric 1. REIT spin-off unlocks trapped real estate worth $2.5 - $3 billion on a NAV basis, currently not being properly valued 2. Added operating leverage in the core business and financial leverage in the overall enterprise would accrue to shareholders Annual tax savings of over $50 million by 2015 Higher overall leverage capacity, lower cost of debt Lower cost of equity capital, could be used for growth $80 - $100 million in annual dividends (~5.7% yield) by 2015 funded by tax savings and additional leverage 3. The core business is a unique and attractive health club management company which generates strong predictable and growing cash flows and is well run by an owner- operator. At todays valuation, after backing out the estimated value of the real estate, investors are able to buy core business at a 50% - 75% discount to its intrinsic value A lack of details and uncertainty of the REIT spin-off Details can be gleaned from past REIT conversions Hiring of advisors, adopting a rights plan and positive market reaction, support the conversion going through The difficulty in valuing the REIT and how it will create value Property level analysis reveals potential portfolio value Real tax savings and capital returns to shareholders The recent poor performance of the core gym business Value Creation From REIT Spin-off The Market Discounts Upside Opportunity Bear case assumes REIT spin does not occur and a discounted trading multiple Base case assumes REIT spin occurs and core business continues to deteriorate Bull case assumes REIT spin occurs and core business stabilizes in 2015 A Brief Overview Of REITs 4 Life Time Athletic Boca Raton, FL Whats Underlying A Real Estate Investment Trust? 5 REITs were formed in 1960 by Congress to enable individual investors to invest in commercial real estate Taxed at the investor level (not corporate level) The return profile has characteristics of both bonds and equities. The long term nature of leases provides income visibility (like bonds), while the mark-to-market of assets allows REITs to take part in the economic cycle (like equities) Net Operating Income (NOI) = property level cash flow Funds from Operations (FFO) = operating cash flow Adjusted Funds from Operations (AFFO) = FFO less maintenance capex less normalized rent less FAS 141/142/143 accounting adjustments Net Asset Value (NAV) = fair market value of real estate Cap Rate = cash flow yield (NOI/NAV) REIT Overview Key Terminology Requirements Of REITs Distribute at least 90% of taxable net income as dividends to shareholders Have at least 75% of assets in real estate and derive at least 75% of gross income from real estate Have a minimum of 100 shareholders and no more than 50% of shares held by 5 or fewer individuals Have no more than 25% of assets invested in stocks of taxable REIT subsidiaries (TRS) Source: NAREIT U.S. REITs By Sector Regional Mall 13% Health Care 12% Apartment 12% Mortgage 11% Office 9% Shopping Center 7% Diversified 7% Lodging Resort 5% Timber 5% Self Storage 5% Infrastructure 5% Other 9% REITs Vs. S&P 500 REITs Have Outperformed The Broader Stock Markets Over The Past 20 Years 6 611% 795% 100% 200% 300% 400% 500% 600% 700% 800% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 S&P 500 Total Return Index MSCI US REIT Total Return Index Source: Capital IQ Non-traditional REITs Are Increasingly Being Formed 7 Over the past five years, several companies in diverse industries have opted to utilize the REIT structure in order to take advantage of the following benefits: o Tax efficiency - the pass-through mechanism of REITs allows companies to avoid double taxation o Monetize trapped assets - spin-offs can value assets which previously did not generate income o Lower cost of capital - REITs have strong access to equity and debt capital markets. Investors are attracted to the dividend yield, stability of cash flows, transparency in capital allocation and downside protection from ownership of real estate. REITs also have access to low-rate secured debt o Transparent capital allocation - the high payout ratio has limited managements flexibility to surprise the investor base with wasteful spending o Broaden investor base - incremental investors include REIT-focused and income investors o Improve valuation - REITs trade at elevated multiples of earnings and cash flow due to the above reasons, serving as positive reinforcement Rationale Investor Reception Source: NAREIT Wall Street rates the average non-traditional REIT a buy REIT conversions typically take 6 to 12 months to complete once announced and the median IRR for an equity investor during a REIT conversion in the last 5 years has been 54% This return includes the value of spin-off companies and accumulated dividends Investors have increasingly called on management teams to assess conversions or spins Elliot Management called on Iron Mountain to convert to a REIT to achieve tax savings and improved cap rates Corvex Capital & Marcato Capital encouraged Corrections Corp of America to convert to a REIT to lower its cost of capital and improve its valuation Marcato Capital is the largest shareholder of Life Time Fitness and has encouraged the spin-off of the real estate assets Ticker Company Assets REIT Structure 1 Date Announced Date Completed Period Length (Yrs) Equity Total Returns 2 Period IRR Total Returns to Date NasdaqGS:LAMR Lamar Advertising Co. Billboards QRS / TRS 8/8/2012 4/23/2014 1.7 62% 33% 69% NYSE:CXW Corrections Corporation of America Prisons QRS / TRS 5/23/2012 2/7/2013 0.7 52% 80% 82% NYSE:GEO The GEO Group, Inc. Prisons QRS / TRS 8/8/2012 1/18/2013 0.4 68% 219% 115% NYSE:IRM Iron Mountain Inc. Document Storage QRS / TRS 4/20/2011 6/25/2014 3.2 7% 2% 29% NasdaqGS:EQIX Equinix, Inc. Data Centers QRS / TRS 9/13/2012 N/A NA NA NA 17% NasdaqGS:GLPI Gaming and Leisure Properties, Inc Casinos REIT Spin-off 11/16/2012 11/1/2013 1.0 57% 60% 27% NYSE:CBSO CBS Outdoor Americas Inc. Billboards REIT Spin-off 1/16/2013 4/2/2014 1.2 68% 54% 58% NYSE:AMT American Tower Corporation Wireless Towers QRS / TRS 5/19/2011 1/3/2012 0.6 13% 22% 97% NYSE:WY Weyerhaeuser Co. Forestlands QRS / TRS 5/15/2009 4/16/2010 0.9 52% 57% 228% NYSE:CCI Crown Castle International Corp. Wireless Towers QRS / TRS 9/9/2013 1/6/2014 0.3 1% 3% 14% NasdaqGS:CONE Cyrusone Inc. Data Centers REIT Spin-off 5/3/2012 1/24/2013 0.7 38% 55% 2% Median 0.8 52% 54% 58% Average 1.1 42% 58% 67% Recent REIT Conversions / Spin-offs Investors Have Cheered REIT Conversions And REIT Spin-offs 8 1 QRS = Qualified REIT Subsidiaries, TRS = Taxable REIT Subsidiaries 2 Equity total returns from conversion announcement date to announced date completed Source: Public Filings, Capital IQ 9 Value Of The REIT Spin-off Life Time Athletic Montvale, NJ Mechanics Of A Tax-free REIT Spin-off For Life Time Fitness 10 No details have been released by LTM; however, the OpCo / PropCo structure is the only viable solution due to REIT rules The real estate assets are spun-off as a public REIT Property is leased back to OpCo at a negotiated rate under a triple net lease where tenant is responsible for property expenses and maintenance The PropCo manages the construction and acquisition of new gyms; can and should diversify from LTM as a single tenant The remaining operating company focuses on managing gyms Business is capital light, focused on efficiently operating gyms, acquisition and retention of customers and maintenance of facilities Earnings are reduced by new rent payments which reduce taxes and increase operating leverage OpCo / PropCo Structure Penn National Gaming Case Study 1 Total return adjusted for stock splits, dividends, rights offerings and spin-offs 2 Regional Gaming Peers include: BYD, CHDN, CZR, ISLE, MCRI Source: Company Filings, Capital IQ, Equity Research Public Shareholders Public Shareholders Operating Company Property Company Gym Business Leasehold Assets Real Estate Assets Dividends Lease Payments 11/15/12 - Penn National Gaming (PENN) announced it would convert to OpCo/PropCo structure, spinning-off real estate into a REIT (GLPI) Rent set at $450m (~15% sales) with annual escalators 15 year triple net lease with four 5-year extension options Minimum EBITDAR coverage 1.8x GLPI responsible for developing/acquiring new properties PENN monetized real estate tax-free and improved capital allocation GLPI, first casino REIT, marketed to consolidate industry property ownership; over 250 casino facilities owned by 140 public companies Pre-spin Capitalization Current Capitalization Pre-spin Valuation Current Valuation PENN: PENN: PENN: PENN: Marketcap $2,845 Marketcap $929 EV/NTM EBITDA 5.3x EV/NTM EBITDA 6.4x TEV $4,807 TEV $1,741 EV/NTM Sal es 1.4x EV/NTM Sal es 0.7x GLPI: GLPI: Marketcap $3,540 EV/NTM EBITDA 14.3x TEV $6,024 EV/NTM Sal es 9.5x $4.00 $8.00 $12.00 $16.00 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 PENN Total Return Regional Gaming Peers 57% PENN total return at transaction close 33% PENN total return since announcement +33% +16% Transaction Closed Transaction Announced 1 2 At 12/31/13, the gross fixed asset book value of land and buildings was $2.3 billion. This excludes gym equipment and office fixtures as well as 2014 additions 1 See appendix for property-level rent analysis Source: Company Filings, Equity Research What Is Life Times Real Estate Worth? 11 Valuing The Trapped Assets What Does LTM Own? Implied Real Estate Value Historical Cost Operates 112 gyms with 7 to open in the next 15 months Has spent 2.9 billion in capital expenditures since 2004 Has not closed any centers since 1997, has never closed a large format center Leased properties are generally older with smaller formats Annual rent on leased properties of $42 million Book value is not reliable for valuing real estate because it does not account for appreciation of the land or cash flow The book value should be viewed as a floor valuation as it gives insight into the replacement value of the land and buildings The market primarily values real estate by measuring cash flow of a portfolio and assigning a valuation multiple The value of LTMs real estate portfolio is currently trapped because it does not generate rents LTMs real estate can be valued by assessing its potential cash flow and assigning an appropriate valuation multiple LTMs real estate holdings can be pieced together from public filings and the Companys existing lease rates can be used to imply market rates for rent 1 Gross Asset Value at Year End 2013 Land 331 Buildings and fixtures 1,722 Leasehold improvements 115 Construction in progress 161 Total $2,328 Owned centers are larger format and newer constructions and justify a premium rental rate over leased centers $25.54 / sq. ft. is consistent with broker estimates 1 The 8.0% cap rate discounted to the average cap rate for triple net lease REITs of 7.5% Ownership Format Age Sq. Ft. Own 82 Current Model 67 1- 12 Months 4 Leased 2,850,000 JV 1 Large Other 24 13 - 36 Months 19 Owned 7,863,505 Lease 29 Other Format 21 37+ Months 89 Total 112 Total 112 Total 112 Total 10,713,505 Leased Property Count Sq. Ft. Implied Rent $ Implied NAV $ Sal e/Leaseback 7 705,665 Rent on Leases $42 Rent / Sq. Ft. $21.29 Standard Lease 22 1,179,457 Less: Ground Lease 2 20% Premi um $25.54 Ground Lease 9 964,878 Adj. Rent $40 Owned Real Estate (MM) 7.86 Total 2,850,000 Net Operati ng Income $201 Less: Ground Lease (964,878) Adj. Leases (MM) 1.89 Cap Rate 8.0% Adj. Leases 1,885,122 Rent / Sq. Ft. $21.29 Est. Real Estate Value $2,511 Owned properties to grow at 6 centers per year, as planned Rent / Sq. Ft. conservatively estimated at $20 in order for the OpCo to maintain EBITDAR coverage above 1.9x, annual rental rate increases of 2% G&A is based on $14 million of current costs for the real estate team with an added $6 million for additional overhead and financial reporting costs Payout ratio chosen to bring dividend yield in-line with triple net lease peers Net leverage in-line with triple net lease peers, capacity for greater leverage Interest rate is higher than current LTM effective rate of ~5% EV/EBITDA multiple compares to a forward multiple of 15.5x for net lease peers, which are a blend of single and multi-tenant REITs Source: Company Filings Arriving At Earnings For The PropCo 12 Base Case PropCo Operating Model Assumptions ($ in Millions) 2015E 2016E 2017E 2018E Model Drivers Owned Gyms 61 67 73 79 Owned Sq. Ft. (MM) 9.74 10.43 11.12 11.81 Rent / Sq Ft. 20.00 20.40 20.81 21.22 Income Statement Rental Income (NOI) $195 $213 $231 $251 G&A 20 20 20 20 EBITDA $175 $193 $211 $231 Interest Expense 53 58 64 70 Maintenance Capex 0 0 0 0 FFO $122 $134 $147 $161 70% Payout $85 $94 $103 $113 Dividend Yield 5.7% 5.7% 5.7% 5.7% Balance Sheet Net Leverage 5.5x 5.5x 5.5x 5.5x Net Debt $961 $1,060 $1,162 $1,268 Interest Rate 5.5% 5.5% 5.5% 5.5% Capitalization EV Multiple 14.0x 14.0x 14.0x 14.0x Enterprise Value $2,446 $2,698 $2,958 $3,228 Less: Debt (961) (1,060) (1,162) (1,268) Equity Value $1,485 $1,638 $1,796 $1,960 Implied Valuation Implied FFO Multiple 12.2x 12.2x 12.2x 12.2x Implied Cap Rate 8.0% 7.9% 7.8% 7.8% The bull case for the PropCo is identical to the base case except that it assumes a higher rental rate The rental rate is a negotiated rate. In the bull case, the PropCo can negotiate a higher rental rate because the OpCo achieves better financial results allowing it to take on a greater rental burden and maintain coverage ratios Bull case EBITDAR coverage of ~2.1x Source: Company Filings Bull Case Earnings For The PropCo 13 Bull Case PropCo Operating Model Assumptions ($ in Millions) 2015E 2016E 2017E 2018E Model Drivers Owned Gyms 61 67 73 79 Owned Sq. Ft. (MM) 9.74 10.43 11.12 11.81 Rent / Sq Ft. 22.00 22.44 22.89 23.35 Income Statement Rental Income (NOI) $214 $234 $254 $276 G&A 20 20 20 20 EBITDA $194 $214 $234 $256 Interest Expense 53 58 64 70 Maintenance Capex 0 0 0 0 FFO $141 $156 $171 $186 70% Payout $99 $109 $119 $130 Dividend Yield 5.6% 5.6% 5.6% 5.6% Balance Sheet Net Leverage 4.9x 4.9x 4.9x 4.9x Net Debt $961 $1,059 $1,160 $1,265 Interest Rate 5.5% 5.5% 5.5% 5.5% Capitalization EV Multiple 14.0x 14.0x 14.0x 14.0x Enterprise Value $2,719 $2,995 $3,282 $3,579 Less: Debt (961) (1,059) (1,160) (1,265) Equity Value $1,758 $1,937 $2,122 $2,314 Implied Valuation Implied FFO Multiple 12.4x 12.4x 12.4x 12.4x Implied Cap Rate 7.9% 7.8% 7.8% 7.7% Sector Marketcap Enterprise Value Net Leverage FFO Payout Dividend Yield EV/2014E EBITDA EV/2015E EBITDA P/2014E FFO P/2015E FFO Retail $5,321 $8,593 7.1x 59% 3.7% 18.4x 16.8x 15.8x 14.7x Residential 4,110 6,330 14.2x 66% 4.2% 20.1x 16.3x 16.2x 15.7x Diversified 4,804 7,291 7.8x 71% 4.5% 17.7x 15.2x 19.3x 20.5x Office 3,636 6,358 7.8x 50% 3.7% 17.3x 16.0x 14.8x 13.7x Industrial 3,968 6,005 7.0x 67% 3.9% 19.6x 16.6x 17.7x 16.1x Hospitality 3,048 4,496 6.1x 39% 3.0% 14.0x 12.5x 13.6x 11.6x Health Care 5,688 8,699 5.7x 72% 5.1% 16.1x 13.3x 14.5x 13.2x Storage 9,871 11,991 4.3x 61% 3.2% 19.7x 17.8x 18.9x 17.2x Mean $5,056 $7,470 7.5x 61% 3.9% 17.8x 15.6x 16.4x 15.4x Median $4,457 $6,825 7.0x 63% 3.8% 18.0x 16.2x 16.0x 15.2x Company Ticker Single Tenant? Marketcap Enterpise Value Net Leverage FFO Payout Dividend Yield EV/2014E EBITDA EV/2015E EBITDA P/2014E FFO P/2015E FFO ARC Properties Inc. ARCP No $11,161 $21,332 15.8x 115% 7.7% 17.0x 13.2x 14.9x 11.8x Realty Income Corp. O Yes 9,223 14,456 6.0x 84% 5.3% 17.4x 15.9x 15.9x 15.2x W. P. Carey Inc. WPC No 6,663 10,420 6.6x 74% 5.5% 16.4x 16.1x 13.5x 15.5x Spirit Realty Capital Inc. SRC Yes 4,383 8,173 7.6x 120% 9.0% 15.4x 14.4x 13.3x 12.6x National Retail Properties NNN Yes 4,383 6,596 4.5x 79% 4.6% 17.7x 16.1x 17.1x 16.1x Gaming and Leisure Properties GLPI Yes 3,520 6,004 9.2x 43% 3.3% 14.4x 14.2x 12.8x 12.2x EPR Properties EPR Primarily 2,897 4,555 5.4x 81% 6.4% 14.0x 12.1x 12.6x 11.6x Lexington Realty Trust LXP No 2,297 4,453 5.9x 60% 6.5% 12.5x 12.3x 9.1x 9.0x Getty Realty Corp. GTY Yes 579 705 2.5x 67% 4.6% 14.5x 13.1x 14.5x 13.4x Mean $5,012 $8,521 7.1x 80% 5.9% 15.5x 14.2x 13.8x 13.1x Median $4,383 $6,596 6.0x 79% 5.5% 15.4x 14.2x 13.5x 12.6x Base Case Valuation 1 REIT sub-sector averages Source: Company Filings, SNL Financial, Capital IQ Assuming Conservative Multiples, The Value Of The PropCo REIT Is Very Attractive 14 Triple Net Lease REIT Comparables Broader REIT Market Comparables 1 Cap Rate 9.0% 8.5% 8.0% 7.5% 7.0% $18 27.96 30.89 34.46 37.92 42.19 $19 29.36 32.45 36.22 39.87 44.38 $20 30.76 34.01 37.98 41.82 46.57 $21 32.15 35.57 39.74 43.77 48.75 $22 33.55 37.13 41.50 45.72 50.94 R e n t / S q .
F t . Bull Case Valuation Property Company 2015E NOI $214 Operating Expenses 20 EBITDA $194 Interest Rate 5.5% Interest Expense 53 Maintenance Capex 0 FFO $141 2015E EBITDA $194 EV/EBITDA Multiple 14.0x Implied EV $2,719 Net Debt $961 Implied Net Leverage 4.9x Implied Equity Value $1,758 Diluted Shares 39.099 PropCo Share Price $44.95 Implied Dividend Yield 5.6% Implied FFO Multiple 12.4x Implied Cap Rate 7.9% Property Company 2015E NOI $195 Operating Expenses 20 EBITDA $175 Interest Rate 5.5% Interest Expense 53 Maintenance Capex 0 FFO $122 2015E EBITDA $175 EV/EBITDA Multiple 14.0x Implied EV $2,446 Net Debt $961 Implied Net Leverage 5.5x Implied Equity Value $1,485 Diluted Shares 39.099 PropCo Share Price $37.98 Implied Dividend Yield 5.7% Implied FFO Multiple 12.2x Implied Cap Rate 8.0% Cap Rate 9.0% 8.5% 7.9% 7.5% 7.0% $20 30.76 34.01 38.63 41.82 46.57 $21 33.52 36.94 41.79 45.14 50.12 $22 36.29 39.87 44.95 48.46 53.68 $23 39.06 42.80 48.11 51.78 57.24 $24 41.82 45.73 51.27 55.10 60.79 R e n t / S q .
F t . 2015 Financial Comparison ($ in Thousands) LTM Status Quo OpCo Base Case PropCo Base Case A - (B + C) Commentary EBITDA 403,111 222,376 174,709 6,026 Status quo EBITDA $6 million higher due to additional overhead and report costs D&A 141,441 91,936 49,504 0 Net Interest 5,826 5,826 52,849 (52,849) Higher leverage is permissible in REIT structures, creating a larger tax shield Other Expense (1,143) (1,143) 0 0 Pre-tax Income 256,988 125,757 72,355 58,876 Tax Rate 40% 40% 0% Tax Expense 102,795 50,303 0 52,492 $52 million in tax savings achieved Dividends 0 0 85,302 (85,302) $85 million of annual shareholder returns created from tax savings and leverage 1 LTMs Bloomberg calculated WACC = 6.6% Source: Company Filings The Value Created From The REIT Spin Is More Than Just Valuation Arbitrage 15 How Would A REIT Spin-off Impact The Overall Financials? Additional Perceived Benefits Theoretical Value Of Tax Savings A 2015E tax savings $85 B Estimated WACC 1 8.0% C Terminal growth rate 2.0% A/(B-C) Implied value to the firm $1,422 Less: additional debt 30 Implied value to equity $1,392 Diluted shares 39.099 Value per share $35.59 More focused operations / simplified business models More disciplined capital allocation Capital returns to shareholders (a bird in the hand) Stifles wasteful spending such as management pet projects (i.e. mobile phone fitness apps, corporate health and wellness analytics?!?) Creates transparency for investors Over time, finds the most productive use for the real estate, even if its not a gym Easier to value the core business 16 The Core Business Life Time Athletic and Tennis Centennial, CO Locations by State AL 1 MO 3 AZ 5 NC 6 CA 1 NE 1 CO 5 NJ 3 FL 2 NV 1 GA 6 NY 2 IA 1 OH 6 IL 9 OK 1 IN 3 TN 1 MD 2 TX 18 MI 7 UT 1 MN 24 VA 4 Canada 1 Core Business Is An Ultra-premium Gym And A Healthy Lifestyle Brand 17 The Healthy Way Of Life Company Operations Premium fitness club catering to fitness tastes, targeting family memberships and affluent customers (avg. household income $100k+) Boasts the most amenities & fitness class programming Amenities include: spa, cafes, indoor & outdoor pools, rock climbing, basketball, racquetball, childcare and more 18 centers feature tennis courts with professional instruction Organizes athletic events, mostly running, cycling and triathlons. In 2013, over 100 events were organized with 150,000 participants Launched health analytics services for individuals and businesses 112 mega-gyms in 29 suburban markets, opening 7 in next 15 months Average gym size ~100,000 sq. ft., excluding pool areas Mature gyms (37+ months) target 9k access members (10k capacity, 80% - 90% utilization), currently 80% of gyms considered mature Currently 712,296 access members, 110,724 non-access members ~23,000 total employees, including 15,000 part-time Large format gyms employ ~250 staff, 10 managerial CEO Bahram Akradi, 52, is a hands-on operator and owns 6.5% of LTM Geographic Footprint Sales generated from membership dues, in-center sales (restaurant, spa, personal training) and athletic events Monthly dues $50 - $200+ for access members (varies by gym), $10 - $20 for non-access members for web services/media subscription and the ability to restart access membership without enrollment fees Athletic event sales generated from registration fees and sponsorships Costs are mostly fixed and profitability is highest at peak utilization Attracts members with a highly differentiated fitness experience and maintains members through pristine facility maintenance and fostering a community around events and the healthy lifestyle brand Large runway for growth no presence in several markets, low penetration in several major markets Business Model Source: Company Filings Life Time Fitness gyms are large capital projects which require significant planning, construction and financing Triple net lease Gym Renter start-up costs include property taxes, insurance, personalized fixtures, equipment outlays and elevated sales and advertising expenses Working capital is ignored, but would be a source of financing because of subscription revenue and lack of inventory EBITDA ramps significantly at higher member capacity utilization, operating leverage is even greater for the renter because of additional rental overhead Future growth and profitability of the events/services business could significantly improve margins and improve business quality GAAP earnings mask free cash flow generation for the Gym Owner, but show a more accurate picture for the Gym Renter, suggesting the Gym Owners business is potentially more complex and more difficult to value The Gym Owners ROIC is lower than LTMs 6.6% WACC (Bloomberg), even before corporate overhead, illustrating that capital has been mis-allocated Taking the real estate out of the business would yield a mid to high teens ROIC for the OpCo, after adjusting for overhead and realistic gym utilization levels (closer to 80%) Unit Economics Are Attractive; However, ROIC Under-earns Cost Of Capital 18 Mature Center Unit Economics 1 Based on last-twelve-months EBITDAR margins, excluding corporate overhead 2 D&A = Greenfield Costs depreciated over 30 years + Maintenance Capex 3 Levered FCF = EBITDA Interest Taxes Maintenance Capex; ROIC = (EBIT x (1 40%)) / (Greenfield Costs + Maintenance Capex) Source: Company Filings Commentary ($ i n Thousands) Gym Owner Gym Renter Assumptions: Greenfi el d Gym Costs $45,000 $6,750 Project Fi nance (50% L-T-V, 5% Rate) $22,500 $3,375 Gym Sq. Ft. 115,000 115,000 Rent/Sq. Ft. $0.00 $20.00 Mai ntenance ($8 / Sq. Ft.) $920 $920 Member Capaci ty 10,000 10,000 Members / Gym (90% Uti l i zati on) 9,000 9,000 Total Sal es / Member $1,749 $1,749 EBITDAR Build: 1 Contribution Margin Member Dues 64% 55% In-Center 31% 15% Events/servi ces 4% 0% 4-Wal l EBITDAR Margi n 40% Income Statement: Annual Sal es $15,738 $15,738 EBITDAR 6,302 6,302 Rent Expense 0 2,300 EBITDA $6,302 $4,002 D&A 2 2,420 1,145 Interest Expense 1,125 169 Taxes @ 40% 1,103 1,075 GAAP Earni ngs $1,654 $1,613 Earnings Margin 10.5% 10.2% Levered FCF 3 $3,154 $1,838 Levered FCF Margin 20.0% 11.7% ROIC 3 5.1% 22.3% Long-term Fundamental Remain Intact, But Recent Operating Metrics Have Disappointed 19 Historical Financial Summary Operating Metrics 1 Broader = SSS for gyms open 13+ months, Mature = SSS for gyms open 37+ months 2 ROIC = (EBIT x (1-40%) / (Net Operating Assets)) Source: Company Filings Commentary Long-term fundamentals remain intact Steady sales growth from new gyms and price increases Stable profitability and growing operating cash flows Working capital is a source of financing Recent operating metrics have disappointed Weak SSS trends, 17 positive SSS quarters followed by 2 negative Highest member attrition in 5 years, compares to 50% attrition at Town Sports (NASDAQGM:CLUB) Access member growth has stagnated, members per gym has declined Reacceleration of growth with 7 centers to open next 15 months $465m in capex spend tied up in unopened and immature centers Margins will temporarily be constrained by newer centers ($ in Millions) 2009 2010 2011 2012 2013 LTM Membershi p dues $565 $603 $663 $728 $767 $788 Enrol l ment fees 26 24 18 15 14 13 In-center revenue 233 266 308 348 376 389 Other revenue 13 19 23 36 50 56 Total Revenue $837 $913 $1,014 $1,127 $1,206 $1,246 Growth 8.8% 9.1% 11.0% 11.2% 7.0% 6.5% Operating Expenses: Center Operati ons $466 $519 $572 $617 $656 $685 % Sales 55.7% 56.8% 56.4% 54.8% 54.4% 55.0% Other Operati ng $22 $24 $36 $52 $64 $67 % Sales 2.6% 2.6% 3.5% 4.6% 5.3% 5.4% Sal es & Marketi ng $26 $27 $36 $40 $43 $44 % Sales 3.1% 3.0% 3.6% 3.5% 3.5% 3.5% General & Admi n. $43 $48 $55 $56 $59 $58 % Sales 5.1% 5.3% 5.4% 4.9% 4.9% 4.7% Profitability & Cash Flow: EBIT $149 $161 $173 $208 $225 $223 % Margin 17.8% 17.6% 17.1% 18.5% 18.6% 17.9% EBITDAR $280 $296 $315 $362 $384 $391 % Margin 33.4% 32.4% 31.1% 32.1% 31.8% 31.4% Cash Fl ow from Ops. $186 $192 $228 $256 $258 $268 % Sales 22.2% 21.1% 22.5% 22.7% 21.4% 21.5% Capex $147 $132 $165 $224 $349 $465 % Sales 17.5% 14.4% 16.3% 19.9% 28.9% 37.3% Mai ntenance Capex $32 $34 $51 $81 $85 $85 % Sales 3.9% 3.8% 5.0% 7.2% 7.0% 6.8% Worki ng Capi tal ($57) ($61) ($56) ($72) ($88) ($96) % Sales (6.8%) (6.7%) (5.5%) (6.4%) (7.3%) (7.7%) Worki ng Capi tal $51 ($5) $5 ($16) ($16) $26 2009 2010 2011 2012 2013 LTM Broader Gym SSS 1 (3.1%) 5.0% 5.1% 4.3% 4.0% 2.2% Mature Gym SSS 1 (7.5%) 2.3% 4.3% 3.7% 3.2% 1.6% Attri ti on 40.6% 33.3% 31.3% 33.5% 35.8% 35.8% ROIC 2 6.6% 7.0% 6.6% 7.5% 7.1% 6.4% Gym Count 84 89 101 105 108 112 Sales / Gym 10.0 10.3 10.0 10.7 11.2 11.1 Access Members 578,937 612,556 676,054 682,621 678,619 712,296 Access Members / Gym 6,892 6,883 6,694 6,501 6,284 6,360 Sales / Access Member $1,446 $1,490 $1,499 $1,651 $1,777 $1,749 % Gyms Mature 71.4% 77.5% 79.2% 79.0% 82.4% 79.5% Base case assumes REIT spin occurs at year-end 2014 Base case projections are in-line with Wall Street analyst projections which assume continued deterioration in the core gym business Run rate of 6 greenfield gyms starting in 2015 Access membership continues to grow below gym count growth Gyms continue to increase sales per member through price increases and in- center sales growth Margins decline in 2015 due to incremental rent expense and remain flat to down through 2018 Rent payments per PropCo base case schedule, initial rent is $20 per sq. ft. and increases 2% per year, 1.9x EBITDAR coverage Free cash flow positive due to low growth capex after 2014 Modest leverage taken out, consistent with capital-light businesses Source: Company Filings Base Case Assumes Continued Deterioration In The Core Gym Business 20 Base Case OpCo Operating Model Assumptions ($ in Millions) 2014E 2015E 2016E 2017E 2018E Model Drivers: Gym Count 113 119 125 131 137 Growth 4.6% 5.3% 5.0% 4.8% 4.6% Access Members 692,191 706,035 727,216 749,033 771,504 Growth 2.0% 2.0% 3.0% 3.0% 3.0% Total Members 808,606 828,270 855,563 883,797 913,006 Sales / Member $1,617 $1,684 $1,729 $1,767 $1,807 Income Statement: Total Revenue $1,307 $1,395 $1,479 $1,562 $1,650 Operating Expenses 894 936 996 1,048 1,108 EBITDAR $413 $459 $483 $514 $542 3rd Party Rent 41 42 43 44 44 PropCo Rent 0 195 213 231 251 EBITDA $372 $222 $228 $239 $247 D&A 133 92 97 103 109 Interest Expense 30 6 6 6 6 Taxes @ 40% 84 50 50 52 53 Working Capital 0 (14) (15) (16) (17) SBC 14 14 14 14 14 Other 1 1 1 1 1 Operating Cash Flows $273 $195 $202 $211 $219 Capex 402 100 100 100 100 Free Cash Flow ($129) $95 $102 $111 $119 Balance Sheet: Net Leverage 3.0x 0.9x 0.9x 0.8x 0.8x Net Debt 1,125 194 194 194 194 Interest Rate 2.6% 3.0% 3.0% 3.0% 3.0% Capitalization: EV Multiple 6.5x 6.5x 6.5x 6.5x 6.5x Enterprise Value 2,416 1,445 1,482 1,551 1,603 Less: Net Debt (1,125) (194) (194) (194) (194) Equity Value 1,291 1,251 1,288 1,357 1,409 Bull case assumes REIT spin occurs at year-end 2014 Bull case projections assume the business stabilizes in 2015 and tailwinds from improving center utilization drive operating metrics higher Run rate of 6 greenfield gyms starting in 2015 Access membership growth catches up to gym count growth by 2016 and exceeds gym count growth in outer years Gyms continue to increase sales per member through price increases and in- center sales growth Margins decline in 2015 due to incremental rent expense but ramp up from 2015 to 2018 Rent payments per PropCo bull case schedule, initial rent is $22 per sq. ft. and increases 2% per year, 2.1x EBITDAR coverage Free cash flow positive due to low growth capex after 2014 and strong cash earnings Modest leverage taken out, consistent with capital-light businesses Source: Company Filings Bull Case Assumes Gym Business Stabilizes In 2015 21 Bull Case OpCo Operating Model Assumptions ($ in Millions) 2014E 2015E 2016E 2017E 2018E Model Drivers: Gym Count 113 119 125 131 137 Growth 4.6% 5.3% 5.0% 4.8% 4.6% Access Members 698,978 733,926 770,623 809,154 849,612 Growth 3.0% 5.0% 5.0% 5.0% 5.0% Total Members 815,392 856,162 898,970 943,918 991,114 Sales / Member $1,633 $1,726 $1,809 $1,890 $1,966 Income Statement: Total Revenue $1,331 $1,478 $1,627 $1,784 $1,949 Operating Expenses 895 939 1,001 1,056 1,119 EBITDAR $436 $539 $626 $728 $830 3rd Party Rent 41 42 43 44 44 PropCo Rent 0 214 234 254 276 EBITDA $395 $283 $349 $430 $510 D&A 135 97 107 118 128 Interest Expense 30 6 6 6 6 Taxes @ 40% 93 72 95 123 151 Working Capital 0 (15) (16) (18) (19) SBC 14 14 14 14 14 Other 1 1 1 1 1 Operating Cash Flows $288 $235 $280 $334 $388 Capex 402 100 100 100 100 Free Cash Flow ($114) $135 $180 $234 $288 Balance Sheet: Net Leverage 2.8x 0.7x 0.6x 0.5x 0.4x Net Debt 1,125 194 194 194 194 Interest Rate 2.6% 3.0% 3.0% 3.0% 3.0% Capitalization: EV Multiple 6.5x 6.5x 6.5x 6.5x 6.5x Enterprise Value 2,568 1,839 2,269 2,793 3,313 Less: Net Debt (1,125) (194) (194) (194) (194) Equity Value 1,443 1,644 2,075 2,599 3,119 Operating Company 2015E Sales $1,478 Operating Expenses 939 Rent 256 EBITDA $283 FCF $135 2015E EBITDA $283 EV/EBITDA Multiple 6.5x Implied EV $1,839 Net Debt $194 Implied Net Leverage 0.7x Implied Equity Value $1,644 Diluted Shares 39.099 OpCo Share Price $42.06 Metrics: Implied EV/2015E Sales 1.2x '15/'14 Sales Growth 11.0% 2015E EBITDA Margin 19.1% 2015E FCF Margin 9.1% Implied 2015 FCF Yield 8.2% Operating Company 2015E Sales $1,395 Operating Expenses 936 Rent 237 EBITDA $222 FCF $95 2015E EBITDA $222 EV/EBITDA Multiple 6.5x Implied EV $1,445 Net Debt $194 Implied Net Leverage 0.9x Implied Equity Value $1,251 Diluted Shares 39.099 OpCo Share Price $32.00 Metrics: Implied EV/2015E Sales 1.0x '15/'14 Sales Growth 6.7% 2015E EBITDA Margin 15.9% 2015E FCF Margin 6.8% Implied 2015 FCF Yield 7.6% Company Ticker Marketcap Enterpise Value Net Leverage 2015E Sales '15/'14 Sales Growth EV / 2015E Sales 2015E EBITDA Margin EV/2015E EBITDA LTMFCF Margin LTMFCF Yield Canadi an Ti re TSX:CTC.A 8,264 10,801 2.1x 11,336 2.5% 1.0x 10.7% 8.9x N/A N/A Penn Nati onal Gami ng PENN 913 1,725 2.1x 2,655 4.2% 0.6x 10.8% 6.0x 1.9% 5.6% The Ensi gn Group ENSG 772 745 (0.2x) 1,114 10.5% 0.7x 10.9% 6.2x N/A N/A Mean $3,316 $4,424 1.3x $5,035 5.7% 0.8x 10.8% 7.0x 1.9% 5.6% Median $913 $1,725 2.1x $2,655 4.2% 0.7x 10.8% 6.2x 1.9% 5.6% Company Ticker Marketcap Enterpise Value Net Leverage 2015E Sales '15/'14 Sales Growth EV / 2015E Sales 2015E EBITDA Margin EV/2015E EBITDA LTMFCF Margin LTMFCF Yield GNC GNC $3,524 $4,750 2.4x $2,776 5.4% 1.7x 19.7% 8.7x 7.9% 5.9% Town Sports CLUB 162 400 3.6x 446 (2.9%) 0.9x 13.8% 6.5x 5.5% 15.7% Vi tami n Shoppe VSI 1,424 1,409 (0.1x) 1,372 12.0% 1.0x 12.6% 8.2x 1.3% 1.1% Jamba JMBA 246 214 (3.0x) 217 (0.4%) 1.0x 11.6% 8.5x N/A N/A Nauti l us NLS 395 338 (2.1x) 278 8.9% 1.2x 12.2% 9.9x 8.1% 5.0% Nutri system NTRI 446 406 (1.6x) 435 8.1% 0.9x 10.5% 8.9x 7.3% 6.4% Wei ght Watchers WTW 1,535 3,681 4.9x 1,381 (5.1%) 2.7x 22.6% 11.8x 13.8% 14.1% Li fe Ti me Fi tness LTM 1,982 3,092 3.2x 1,399 8.1% 2.2x 28.6% 7.7x N/A N/A Mean $1,214 $1,786 0.9x $1,038 4.3% 1.5x 16.5% 8.8x 7.3% 8.0% Median $935 $908 1.1x $909 6.7% 1.1x 13.2% 8.6x 7.6% 6.1% Base Case Source: Company Filings, Capital IQ Core Business Valuation Is Supportive Of The Proposed Transaction 22 Healthy Lifestyle Comparables Real Estate Operating Company Comparables Bull Case LTMs historic multiple has been 7.0x 9.0x EV / NTM EBITDA A 6.5x 2015E EBITDA multiple is in-line with OpCo comparables, well-below healthy lifestyle comparables and discounted to LTMs historic range Selected Gym Business Multiple 2015 Access Member Growth 0.0% 1.0% 2.0% 3.0% 4.0% 5.5x 22.82 24.57 26.31 28.06 29.81 6.0x 25.34 27.25 29.16 31.07 32.97 6.5x 27.87 29.94 32.00 34.07 36.13 7.0x 30.40 32.62 34.85 37.07 39.30 7.5x 32.92 35.31 37.69 40.07 42.46 E B I T D A
M u l t i p l e 2015 Access Member Growth 3.0% 4.0% 5.0% 6.0% 7.0% 5.5x 31.26 33.04 34.82 36.60 38.38 6.0x 34.56 36.50 38.44 40.38 42.32 6.5x 37.85 39.95 42.06 44.16 46.26 7.0x 41.14 43.41 45.67 47.94 50.20 7.5x 44.44 46.86 49.29 51.72 54.14 E B I T D A
M u l t i p l e LTM Multiple Last 4 Years EV / NTM EBITDA High 9.1x Low 6.7x Median 7.8x Average 7.8x 1. Industry competition has intensified due to the popularity of capital-light studio-model fitness programs (i.e. cross-fit, yoga, ect.) Life Time Fitness has a sustainable competitive advantage deriving from its unique gym assets ($2.9 billion in capex spent since 2004), its brand name ($200 million in marketing spend since 2008) and the expertise of its gym operators, real estate managers, and executive management team developed over the past 20 years The Company directly competes with studio-model clubs by offering studio-style classes on top of its existing platform. Management has discussed introducing alternative membership plans which could offer access to certain services such as studio-style classes, locker rooms and spa without full access to gym and pool 2. Gym memberships are discretionary purchases sensitive to the economic cycle Life Times scale and capital resources provide it sufficient financial strength to endure economic downturns After the 2008 recession, the Company curtailed growth to become free cash flow positive and de-lever its balance sheet. Despite reduced investment, LTM grew its operating cash flows by 11% per year from 2009 to 2011 and reduced membership churn from a 2009 peak 3. High membership costs limit Life Times total addressable market Life Times stated target demographic is households earning over $100k. According to the Census Bureau, 24 million (~20%) U.S. households make over $100k per year. Given that there are currently <1 million access members, there continues to be a large addressable market to tap into 4. Membership churn has sequentially increased since 2011; at 36% attrition, LTM will exhaust its customer base Churn is related to all the above listed factors (competition, macro-environment, membership costs) as well as facility condition, seasonality and overall experience Facility upkeep is essential to member retention. LTM spends ~100 million a year or ~8.00 per sq. ft. maintaining its facilities. Anecdotal evidence (conversations with people familiar with the gyms, online reviews) suggest facilities, even old ones, are kept in pristine condition Monthly membership cost ($50 - $200+) is at the upper-end of industry pricing and, according to management and online reviews, is the number one reason for high attrition. Many people sign up only to realize they cannot afford or justify a membership. However, the most common form of membership is the family member which is much stickier. Families get more utility from the mega-gym format because there is something for all ages and fitness routines Seasonality is an artificial contributor to attrition. It is well known that people sign up for gyms in January only to give up several months in. LTM is also has seasonal interest in its amenities. In winter, people sign up to use indoor tennis courts, pools, ect. In summer, a driver of membership is access to outdoor pools Life Times Management has a deep understanding of membership attrition and has a team dedicated to improving retention. LTM is best in class when compared to Town Sports current attrition level of 42% and legacy Bally Total Fitness levels of over 50%. Management has been able to reduce attrition in the past, reducing attrition from 41% in 2009 to 31% in 2011 Core Business Challenges Are Serious, But Manageable 23 Key Business Risks And Mitigating Factors 24 Conclusion Life Time Fitness Tennis Facility Lakeville, MN Life Time Fitness Status Quo Operating Company Property Company Marketcap $1,996 2015E Sales $1,395 2015E NOI $195 Debt 1,125 Operating Expenses 936 Operating Expenses 20 Cash 16 EBITDAR $459 EBITDA $175 Minority Interest 0 3rd Party Rent 42 Interest Rate 5.5% Enterprise Value $3,106 PropCo Rent 195 Interest Expense 53 EBITDA $222 Maintenance Capex 0 Diluted Shares 39.099 FFO $122 Implied Share Price $51.06 Operating Cash Flow 195 Capex 100 Payout Ratio 70.0% 2015E EBITDA $403 Free Cash Flow $95 Dividends $85 EV / 2015E EBITDA Multiple 7.7x Dividend Yield 5.7% Net Debt / LTM EBITDA 3.2x 2015E EBITDA $222 2015E EBITDA $175 EV/EBITDA Multiple 6.5x EV/EBITDA Multiple 14.0x Implied EV $1,445 Implied EV $2,446 Net Debt $194 Net Debt $961 Implied Net Leverage 0.9x Implied Net Leverage 5.5x Implied Equity Value $1,251 Implied Equity Value $1,485 Current Implied Share Price $51.06 Sum-Of-The-Parts $69.98 Diluted Shares 39.099 Diluted Shares 39.099 Base Case Upside 37.1% OpCo Share Price $32.00 PropCo Share Price $37.98 Bear Case Downside (24.3%) Implied EV / Sales 1.0x Implied FFO Multiple 12.2x Bull Case Upside 70.4% EBITDAR Coverage 1.9x Implied Cap Rate 8.0% The Sum-Of-The-Parts Valuation Implies Significant Upside 25 Valuation Summary Indicates Model Assumption Because Life Time has only indicated that it is exploring a REIT spin-off transaction and has not provided any technical details, the market discounts the uncertainty If the REIT spin-off does not occur, shares are likely to fall 20% - 30% due to the market penalizing it to a discounted multiple on poor fundamentals and lack of catalysts However, in conjunction with the initial announcement, LTM indicated that it has hired financial and legal advisors to review the potential conversion. The Company has also put in place a shareholder rights plan to ensure that it will meet the ownership requirements of a REIT conversion. These circumstantial facts in addition to market and shareholder support indicate that a REIT spin-off is very highly likely If a REIT spin-off does occur, the analysis presented in this report indicate that shareholders stand to gain under any reasonable, even unreasonable, valuation sensitivity Therefore, the risk vs. reward dynamic is positively skewed given that there is a highly likely scenario where investors can gain 37% - 70% and an unlikely outcome where investor can lose 20% - 30% Today, an investment in Life Time Fitness represents the opportunity to own a world-class fitness center operator with valuable assets on the cusp of unlocking value for shareholders Despite the recent appreciation in share price, LTM is trading at a significant discount to its intrinsic value with the opportunity for shares to appreciate 37% - 70% over the next 12 months in anticipation of the likely REIT spin-off A REIT spin-off could unlock the value of real estate worth as much as $2.5 - $3 billion, on a NAV basis, and worth as much as $45 per share to shareholders as a publically traded REIT The REIT spin-off would be praised by investors and would enhance the financial characteristics of the two separated entities The core gym business is a valuable, capital-light asset that generates consistent and growing cash flows Given that the current market value of LTM is $2 billion, an investor today can buy LTM for the real estate and after adjusting for net debt, receive the remaining core gym business at a 50% - 75% discount to its intrinsic value Conclusion: Life Time Fitness Is On The Cusp Of Being Re-valued 26 Investment Highlights Risk Vs. Reward 27 Appendix Life Time Fitness Alpharetta, GA Executive Management Team: ($ i n Thousands) Name Position Years at LTM 2013 Cash Comp. 2013 Equity Comp. LTM Stock Ownership Unvested Stock Value Bahram Akradi Chai rman & CEO 22 $2,178 $4,180 $128,668 $22,839 Eri c Buss Chi ef Fi nanci al Offi cer 15 436 836 7,551 4,700 Jeffrey Zwi efel Chi ef Operati ng Offi cer 15 532 836 6,888 4,700 Tami Kozi kowski EVP of Real Estate 2 436 501 6,382 1,857 John Hugo Pri nci pal Accounti ng Offi cer 12 N/A N/A 1,328 N/A Jess El mqui st EVP of Human Resources 15 N/A N/A 1,434 N/A Average 14 $895 $1,588 $25,375 $8,524 Board of Directors: Name Position Years at LTM 2013 Total Comp. LTM Stock Ownership Area of Expertise Gi l es Bateman Fi nance Commi ttee Chai r 8 $173 $1,271 Pri ce Cl ub Founder Jack Eugster Di rector 5 163 1,699 Experti se i n retai l Guy Jackson Audi t Commi ttee Chai r 10 178 1,355 Ernst & Young Partner John Ll oyd Di rector 5 163 1,071 Meri di an Heal th Presi dent Martha Morfi tt Di rector 6 163 1,059 CNS CEO John Ri chards Nomi nati ng Commi ttee Chai r 8 173 563 Experti se i n heal th servi ces Joseph Vassal l uzzo Comp. Commi ttee Chai r 8 293 4,147 Experti se i n real estate Average 7 $187 $1,595 Management & Board own $163 million in equity or 8.2% of company Akradi serves as board chairman, all other directors are independent Management is required to own stock worth 3x 5x their base salary In 2013, total executive management compensation was down 13% 1 2014 Incentive compensation targets: 12% total shareholder return, 10% diluted EPS growth, 10% revenue growth, 10% EBITDA growth and long-term ROIC target of 9.0% 1 Adjusted for Management turnover Source: Company Filings Management Has An Ownership Mentality And Is Aligned With Shareholders 28 Mr. Akradi founded Life Time Fitness in 1992 using proceeds received from selling a very successful regional gym chain to Bally Total Fitness Bahramis the archetype of an owner-operator. He is known to be a deeply involved, hands-on operator who has a final say as to every major decision from financing to gym locations Akradi is the most visible figure on investor calls and is a straight shooter. He gives direct answers to questions and is not afraid to come off as stubborn Braham is by all accounts a health nut, known to run a spinning class when dropping in on a gym Starting Life Time from scratch (after selling his company) and growing the concept aggressively shows that Akradi is a shrewd risk-taker CEO Bahram Akradi Key Decision Makers And Governance Akradi is the Companys founder and cares deeply about its reputation Akradis 2013 cash compensation was $2.2 million and total comp. was 2/3 equity- based. With ~$129 million in held equity (~6.5% LTMs market cap), Akradi gains the most from increasing shareholder value ($ in Millions) Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Sales: Membershi p dues $145.2 $152.9 $155.3 $149.9 $158.0 $167.0 $171.5 $166.9 $175.5 $184.9 $187.6 $179.7 $186.4 $194.8 $195.7 $190.0 $196.8 $205.2 Enrol l ment fees 6.3 6.2 6.1 5.8 5.2 4.7 4.4 4.2 4.0 3.9 3.9 3.6 3.4 3.6 3.6 3.4 3.1 3.0 I n-center revenue 65.5 68.5 69.5 63.0 73.7 80.3 80.7 73.7 84.6 90.1 90.5 83.0 92.0 97.3 97.2 89.0 98.4 104.4 Other revenue 2.8 3.6 7.5 4.9 3.7 4.7 8.8 6.1 4.4 9.4 12.9 9.1 9.0 12.4 19.5 8.6 13.6 14.0 Total revenue $219.8 $231.1 $238.3 $223.7 $240.6 $256.7 $265.4 $250.9 $268.4 $288.3 $294.9 $275.3 $290.7 $308.1 $316.0 $291.0 $312.0 $326.6 Y/Y Growth % 6.5% 8.7% 11.2% 9.8% 9.5% 11.1% 11.4% 12.2% 11.6% 12.3% 11.1% 9.7% 8.3% 6.9% 7.2% 5.7% 7.3% 6.0% Operating Expenses: Center operati ons 137.6 142.2 145.2 136.1 149.6 156.7 159.3 149.4 160.7 166.6 169.5 159.1 170.0 176.8 180.4 169.0 183.1 194.0 Adverti si ng and marketi ng 6.8 5.9 6.3 8.2 8.6 9.0 8.9 9.8 10.4 9.7 8.8 11.1 11.0 9.6 9.8 12.4 12.3 9.7 General and admi n. 10.7 11.3 10.6 15.5 12.7 12.1 12.5 17.4 13.7 13.9 13.6 14.5 15.4 15.7 14.5 13.4 15.9 14.5 Other operati ng 4.3 5.5 7.3 6.4 6.0 8.0 9.4 12.2 8.4 12.8 14.1 16.9 12.8 15.2 18.5 17.9 14.4 16.4 EBITDA $59.70 $65.5 $68.3 $56.8 $63.2 $70.2 $74.6 $61.4 $74.6 $84.8 $88.2 $73.0 $81.0 $90.1 $92.2 $77.7 $85.5 $91.3 EBITDA Margin % 27.2% 28.3% 28.7% 25.4% 26.3% 27.4% 28.1% 24.5% 27.8% 29.4% 29.9% 26.5% 27.8% 29.2% 29.2% 26.7% 27.4% 28.0% D&A 22.8 46.0 69.4 92.3 23.6 48.3 73.6 98.8 27.0 55.8 85.2 115.0 29.3 59.3 89.2 119.0 32.1 66.6 EBI T $36.94 $19.5 ($1.1) ($35.5) $39.6 $21.9 $0.9 ($37.5) $47.6 $29.0 $2.9 ($42.0) $51.7 $30.8 $2.9 ($41.2) $53.4 $24.7 EBIT Margin % 16.8% 8.4% (0.5%) (15.9%) 16.4% 8.5% 0.3% (14.9%) 17.7% 10.0% 1.0% (15.2%) 17.8% 10.0% 0.9% (14.2%) 17.1% 7.6% Cash Flow: Operati ng Cash Fl ow 53.9 100.7 146.1 192.3 60.1 118.5 177.3 227.9 73.9 142.2 202.9 255.7 76.2 124.5 190.8 258.4 77.7 133.7 Capex 23.0 48.2 86.1 131.7 38.4 83.0 122.1 165.3 38.5 106.1 164.6 224.2 59.1 137.4 224.5 348.9 82.8 253.4 % of Sales 10.5% 20.8% 36.1% 58.9% 15.9% 32.3% 46.0% 65.9% 14.3% 36.8% 55.8% 81.4% 20.3% 44.6% 71.1% 119.9% 26.6% 77.6% FCF $30.8 $52.5 $60.0 $60.6 $21.8 $35.5 $55.2 $62.6 $35.4 $36.1 $38.3 $31.6 $17.1 ($13.0) ($33.8) ($90.5) ($5.2) ($119.7) FCF Margin % 14.0% 22.7% 25.2% 27.1% 9.0% 13.8% 20.8% 25.0% 13.2% 12.5% 13.0% 11.5% 5.9% (4.2%) (10.7%) (31.1%) (1.7%) (36.7%) Share Repurchases 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.1 19.3 28.2 40.3 62.0 60.5 140.0 Operating Metrics: Broader Same Store Sal es 2.6% 4.8% 6.6% 5.9% 5.3% 5.4% 4.7% 5.0% 5.4% 4.2% 4.6% 4.3% 3.5% 4.8% 4.2% 3.6% 1.5% (0.6%) Mature Same Store Sal es (1.2%) 1.8% 4.0% 4.0% 3.8% 4.5% 4.1% 4.9% 5.0% 3.6% 3.9% 3.7% 3.0% 3.8% 3.4% 2.7% 1.1% (0.9%) Access Members 650,784 631,862 622,698 612,556 650,784 664,307 653,300 676,054 704,467 708,585 695,271 682,621 708,563 713,138 695,923 678,619 702,011 712,296 Other Members 50,001 56,768 63,535 70,302 81,554 87,180 89,993 92,806 93,173 94,304 100,831 104,382 101,250 99,728 105,928 110,871 110,000 110,725 Total Members 700,785 688,630 686,233 682,858 732,338 751,487 743,293 768,860 797,640 802,889 796,102 787,003 809,813 812,866 801,851 789,490 812,011 823,021 Center Sal es / Access Member 232.8 251.7 259.1 254.3 250.8 258.5 269.3 253.0 254.7 266.5 275.3 268.5 267.8 278.2 286.3 285.0 284.8 292.3 I n-center Sal es / Access Member 100.7 108.3 111.5 102.8 113.2 120.9 123.6 109.1 120.1 127.2 130.2 121.6 129.8 136.4 139.7 131.2 140.2 146.5 Gym Count 86 88 89 89 90 92 92 101 103 105 105 105 105 106 107 108 108 112 Annual i zed Quarterl y Attri ti on 39.3% 38.2% 37.1% 36.3% 36.1% 35.8% 35.3% 35.0% 31.7% 31.9% 32.9% 33.5% 33.9% 34.5% 35.0% 35.8% 35.7% 35.8% Quarterl y Attri ti on 10.8% 8.5% 8.4% 9.9% 8.4% 8.1% 9.0% 9.6% 7.9% 7.6% 9.0% 9.1% 8.2% 8.2% 9.5% 9.8% 8.2% 8.3% Historical Quarterly Financials 29 Source: Company Filings ($ in Actuals) Average Net Lease Average Full Lease Property Type Property Count Asking TI Rent Expenses Rent LTM Sq. Ft Rent (A) Rent (A+E) Rent (A+E+Tl) JV Interest 1 $12.07 $16.05 $28.12 $4.24 $32.36 108,890 $1,314,302 $1,775,996 $3,090,298 Leased 22 12.60 12.49 25.10 4.89 29.99 1,179,457 15,289,208 21,628,387 36,917,595 Mortgage 32 11.42 12.93 24.36 4.96 29.32 3,553,625 40,273,000 57,905,146 98,178,146 Sale/Leaseback 7 12.36 12.72 25.09 4.63 29.72 754,176 9,448,203 12,881,548 22,329,751 Owned 41 12.39 15.12 27.51 5.13 32.64 4,237,606 52,515,669 74,064,006 126,579,675 Ground Leased 9 14.54 13.32 27.86 6.20 34.07 964,878 14,310,134 20,265,653 34,575,787 Tennis 2 12.29 18.12 30.41 6.59 37.00 91,090 1,109,927 1,646,811 2,756,738 Total Facilities (incl. Tennis) 114 $12.53 $14.39 $26.92 $5.24 $32.16 10,889,722 $134,260,443 $190,167,547 $324,427,990 Detailed Property Breakout And Brokerage Estimates 30 Source: Equity Research Net Lease Total Lease Type Metro State Submarket A/N Asking Expenses Rent TI Rent LTM Sq Ft Rent (A) Rent (A+E) Rent (A+E+TI) Club Name Owned Birmingham AL South A $11.67 $3.80 $15.47 $13.21 $28.68 103,647 $1,209,560 $1,603,419 $2,972,596 Vestavia Hills Sale/Leaseback Phoenix AZ NW Phoenix/Glendale A $9.51 $3.59 $13.10 $8.25 $21.35 109,775 1,043,960 1,438,053 2,343,696 Scottsdale Owned Phoenix AZ W Phx/SW Valley A $9.09 $4.60 $13.69 $7.20 $20.89 109,775 997,855 1,502,820 2,293,200 Palm Valley Mortgage Phoenix AZ Mesa/Chndlr./Gilbrt. A $11.60 $3.38 $14.98 $13.03 $28.01 108,890 1,263,124 1,631,172 3,050,009 Gilbert Mortgage Phoenix AZ Tempe/S Phoenix A $9.68 $5.03 $14.71 $7.56 $22.27 108,890 1,054,055 1,601,772 2,424,980 Tempe Leased Phoenix AZ N Sctsdle./Par. Vly. N $24.50 $5.17 $29.67 $9.11 $38.78 20,620 505,190 611,795 799,644 Lifepower Yoga at Pima Crossing Ground Leased Orange County CA South A $22.11 $7.23 $29.34 $15.20 $44.54 127,000 2,807,970 3,726,180 5,656,580 Laguna Niguel Tennis Denver CO South A $12.13 $5.53 $17.66 $18.68 $36.34 75,450 915,209 1,332,447 2,741,853 Centennial Tennis Owned Denver CO South A $12.13 $5.53 $17.66 $18.68 $36.34 129,182 1,566,978 2,281,354 4,694,474 Centennial Owned Colorado Springs CO Northeast A $10.20 $3.96 $14.16 $18.30 $32.46 112,110 1,143,522 1,587,478 3,639,091 Colorado Springs Mortgage Denver CO Southeast A $10.05 $3.10 $13.15 $13.61 $26.76 129,155 1,298,008 1,698,388 3,456,188 Parker Aurora Mortgage Denver CO Northeast A $9.61 $4.13 $13.74 $6.62 $20.36 112,110 1,077,377 1,540,391 2,282,560 Westminster Mortgage Palm Beach FL Boca Raton A $14.96 $7.13 $22.09 $17.66 $39.75 73,688 1,102,372 1,627,768 2,929,098 Boca Raton Leased Tampa-St. Petersburg FL Downtown Estimated A $9.97 $5.00 $14.97 $12.00 $26.97 60,000 598,080 898,080 1,618,080 Tampa Sale/Leaseback Atlanta GA Sndy. Sprgs./N Fult. A $12.29 $2.74 $15.03 $5.61 $20.64 109,720 1,348,459 1,649,092 2,264,621 Alpharetta Owned Atlanta GA Cumberland/East Cobb A $11.44 $2.15 $13.59 $7.69 $21.28 112,110 1,282,538 1,523,575 2,385,701 Woodstock-Mountain Brook Mortgage Atlanta GA Sndy. Sprgs./N Fult. A $12.29 $2.74 $15.03 $5.61 $20.64 112,110 1,377,832 1,685,013 2,313,950 Johns Creek Mortgage Atlanta GA P'Tree Cnrs./Norcss. A $10.60 $2.23 $12.83 $6.16 $18.99 112,110 1,188,366 1,438,371 2,128,969 Sugar Loaf Leased Atlanta GA P'Tree Cnrs./Norcss. A $10.60 $2.23 $12.83 $6.16 $18.99 22,703 240,652 291,279 431,130 Peachtree Corners Tennis Ground Leased Atlanta GA Sndy. Sprgs./N Fult. A $12.29 $2.74 $15.03 $5.61 $20.64 116,848 1,436,062 1,756,225 2,411,743 Atlanta Owned Des Moines IA N/A A $8.00 $5.00 $13.00 $12.00 $25.00 175,000 1,400,000 2,275,000 4,375,000 Des Moines Sale/Leaseback Chicago IL Far West A $11.28 $6.09 $17.37 $19.22 $36.59 110,563 1,247,151 1,920,479 4,045,500 Romeoville Owned Chicago IL Kane A $11.84 $4.81 $16.65 $11.63 $28.28 108,890 1,289,258 1,813,019 3,079,409 Algonquin Owned Chicago IL Far North A $13.81 $8.30 $22.11 $23.76 $45.87 108,890 1,503,771 2,407,558 4,994,784 Old Orchard Owned Chicago IL Lake/McHenry A $12.75 $6.01 $18.76 $19.79 $38.55 140,495 1,791,311 2,635,686 5,416,082 Vernon Hills Mortgage Chicago IL Far West A $11.28 $6.09 $17.37 $19.22 $36.59 105,562 1,190,739 1,833,612 3,862,514 Burr Ridge Mortgage Chicago IL Southwest A $10.43 $6.10 $16.53 $10.87 $27.40 108,890 1,135,723 1,799,952 2,983,586 Orland Park Mortgage Chicago IL Far Northwest A $10.68 $7.88 $18.56 $17.09 $35.65 108,890 1,162,945 2,020,998 3,881,929 Schaumburg Mortgage Chicago IL Far West A $11.28 $6.09 $17.37 $19.22 $36.59 114,933 1,296,444 1,996,386 4,205,398 Warrenville JV Interest Chicago IL Lombard/Addison A $12.07 $4.24 $16.31 $16.05 $32.36 108,890 1,314,302 1,775,996 3,523,680 Bloom in gdale Owned Indianapolis IN Northeast A $10.91 $3.99 $14.90 $9.65 $24.55 90,956 992,330 1,355,244 2,232,970 Castle Creek Owned Indianapolis IN North A $13.00 $4.84 $17.84 $23.77 $41.61 32,000 416,000 570,880 1,331,520 Fishers Leased Indianapolis IN Northwest A $8.90 $4.55 $13.45 $15.11 $28.56 44,000 391,600 591,800 1,256,640 North Meridian Sale/Leaseback Baltimore MD Howard/Carroll Cos. A $16.01 $3.61 $19.62 $14.58 $34.20 110,563 1,770,114 2,169,246 3,781,255 Columbia Leased Suburban Maryland MD Gthsbg./Rkvle./Germ. A $19.87 $7.68 $27.55 $14.42 $41.97 66,700 1,325,329 1,837,585 2,799,399 Rockville Owned Detroit MI North Oakland A $14.14 $5.99 $20.13 $12.92 $33.05 108,890 1,539,705 2,191,956 3,598,815 Rochester Hills Owned Detroit MI Detroit/West Wayne A $9.26 $4.02 $13.28 $13.19 $26.47 108,890 1,008,321 1,446,059 2,882,318 Canton Township Owned Detroit MI Detroit/West Wayne A $9.26 $4.02 $13.28 $13.19 $26.47 90,956 842,253 1,207,896 2,407,605 Novi Net Lease Total Lease Type Metro State Submarket A/N Asking Expenses Rent TI Rent LTM Sq Ft Rent (A) Rent (A+E) Rent (A+E+TI) Club Name Owned Detroit MI Macomb A $10.63 $3.22 $13.85 $12.70 $26.55 101,680 1,080,858 1,408,268 2,699,604 Shelby Township Owned Detroit MI North Oakland A $14.14 $5.99 $20.13 $12.92 $33.05 93,579 1,323,207 1,883,745 3,092,786 Troy Mortgage Detroit MI South Oakland A $11.27 $4.03 $15.30 $13.47 $28.77 108,890 1,227,190 1,666,017 3,132,765 Commerce Township Leased Detroit MI South Oakland A $11.27 $4.03 $15.30 $13.47 $28.77 75,000 845,250 1,147,500 2,157,750 Bloomfield Tennis Minneapolis MN West Hennepin County A $12.45 $7.65 $20.10 $17.56 $37.66 15,640 194,718 314,364 589,002 Oakdale Village Tennis Sale/Leaseback Minneapolis MN St. Paul A $9.82 $6.51 $16.33 $12.68 $29.01 73,050 717,351 1,192,907 2,119,181 Woodbury Owned Minneapolis MN Dakota County A $13.27 $6.05 $19.32 $12.69 $32.01 64,415 854,787 1,244,498 2,061,924 Eagan Owned Minneapolis MN St. Paul A $9.82 $6.51 $16.33 $12.68 $29.01 39,678 389,638 647,942 1,151,059 Highland Park Owned Minneapolis MN Dakota County A $13.27 $6.05 $19.32 $12.69 $32.01 115,030 1,526,448 2,222,380 3,682,110 Lakeville Owned Minneapolis MN West Hennepin County A $12.45 $7.65 $20.10 $17.56 $37.66 72,500 902,625 1,457,250 2,730,350 Maple Grove Owned Minneapolis MN West Hennepin County A $12.45 $7.65 $20.10 $17.56 $37.66 41,000 510,450 824,100 1,544,060 Minnetonka Owned Minneapolis MN Anoka Co/SE Sherbrne A $11.99 $5.54 $17.53 $14.10 $31.63 58,782 704,796 1,030,448 1,859,275 White Bear Lake Mortgage Minneapolis MN E Hennepin/Mnpls. A $14.16 $6.86 $21.02 $9.46 $30.48 47,307 669,867 994,393 1,441,917 Bloomington North Mortgage Minneapolis MN Dakota County A $13.27 $6.05 $19.32 $12.69 $32.01 95,314 1,264,817 1,841,466 3,051,001 Bloomington South Mortgage Minneapolis MN N/A A $8.00 $5.00 $13.00 $12.00 $25.00 110,563 884,504 1,437,319 2,764,075 Chanhassen (corp.) Mortgage Minneapolis MN West Hennepin County A $12.45 $7.65 $20.10 $17.56 $37.66 145,896 1,816,405 2,932,510 5,494,443 Crosstown Eden Prairie Mortgage Minneapolis MN West Hennepin County A $12.45 $7.65 $20.10 $17.56 $37.66 89,011 1,108,187 1,789,121 3,352,154 Eden Prairie Athletic Mortgage Minneapolis MN St. Paul A $9.82 $6.51 $16.33 $12.68 $29.01 162,048 1,591,311 2,646,244 4,701,012 Fridley Mortgage Minneapolis MN E Hennepin/Mnpls. A $14.16 $6.86 $21.02 $9.46 $30.48 189,496 2,683,263 3,983,206 5,775,838 St. Louis Park Leased Minneapolis MN Dakota County A $13.27 $6.05 $19.32 $12.69 $32.01 10,375 137,676 200,445 332,104 Apple Vailey Leased Minneapolis MN Anoka Co/SE Sherbrne A $11.99 $5.54 $17.53 $14.10 $31.63 90,262 1,082,241 1,582,293 2,854,987 Coon Rapids Leased Minneapolis MN E Hennepin/Mnpls. A $14.16 $6.86 $21.02 $9.46 $30.48 71,195 1,008,121 1,496,519 2,170,024 Minneapolis Athletic Club Leased Minneapolis MN E Hennepin/Mnpls. A $14.16 $6.86 $21.02 $9.46 $30.48 44,156 625,249 928,159 1,345,875 New Hope Leased Minneapolis MN St. Paul A $9.82 $6.51 $16.33 $12.68 $29.01 14,000 137,480 228,620 406,140 Roseville (women only) Leased Minneapolis MN E Hennepin/Mnpls. A $14.16 $6.86 $21.02 $9.46 $30.48 170,925 2,420,298 3,592,844 5,209,794 Target Center Ground Leased Minneapolis MN West Hennepin County A $12.45 $7.65 $20.10 $17.56 $37.66 61,948 771,253 1,245,155 2,332,962 Champlin Ground Leased Minneapolis MN West Hennepin County A $12.45 $7.65 $20.10 $17.56 $37.66 109,558 1,363,997 2,202,116 4,125,954 Plymouth Ground Leased Minneapolis MN N/A A $8.00 $5.00 $13.00 $12.00 $25.00 80,583 644,664 1,047,579 2,014,575 Savage Owned Kansas City MO Johnson County A $10.60 $3.95 $14.55 $16.63 $31.18 112,110 1,188,366 1,631,201 3,495,590 Lenexa Owned St. Louis MO Saint Louis Central A $14.79 $3.66 $18.45 $8.37 $26.82 112,110 1,658,107 2,068,430 3,006,790 West County Mortgage Kansas City MO Johnson County A $10.60 $3.95 $14.55 $16.63 $31.18 110,080 1,166,848 1,601,664 3,432,294 Overland Park Ground Leased Canada N/A N/A A $8.00 $5.00 $13.00 $12.00 $25.00 146,674 1,173,392 1,906,762 3,666,850 Canada Mortgage Raleigh-Durham NC Cary/SW Raleigh A $12.78 $2.66 $15.44 $12.55 $27.99 109,995 1,405,736 1,698,323 3,078,760 Cary Leased Raleigh-Durham NC Cary/SW Raleigh A $12.78 $2.66 $15.44 $12.55 $27.99 35,244 450,418 544,167 986,480 Apex Leased Charlotte NC East A $9.41 $3.56 $12.97 $23.51 $36.48 36,594 344,350 474,624 1,334,949 Matthews Leased Raleigh-Durham NC North Raleigh A $11.55 $2.67 $14.22 $12.76 $26.98 32,000 369,600 455,040 863,360 Plantation Point Leased Raleigh-Durham NC North Raleigh A $11.55 $2.67 $14.22 $12.76 $26.98 45,306 523,284 644,251 1,222,356 Six Forks Leased Charlotte NC North A $12.13 $2.99 $15.12 $15.10 $30.22 35,230 427,340 532,678 1,064,651 University Sale/Leaseback Omaha NE West A $14.07 $4.82 $18.89 $10.79 $29.68 115,030 1,618,472 2,172,917 3,414,090 Omaha Owned Northern New Jersey NJ North Morris A $18.76 $5.58 $24.34 $19.27 $43.61 109,995 2,063,506 2,677,278 4,796,882 Florham Park Owned Northern New Jersey NJ North Bergen A $21.84 $5.88 $27.72 $35.19 $62.91 102,563 2,239,976 2,843,046 6,452,238 Montvale Ground Leased Northern New Jersey NJ Union N $24.32 $6.20 $30.52 $5.49 $36.01 112,110 2,726,515 3,421,597 4,037,081 Berkeley Heights Owned Las Vegas NV Northwest A $11.59 $4.06 $15.65 $19.39 $35.04 143,286 1,660,685 2,242,426 5,020,741 Summerlin Owned Westchester NY Central Westchester A $25.08 $12.61 $37.69 $26.91 $64.60 135,993 3,410,704 5,125,576 8,785,148 Westchester Ground Leased Long Island NY Glen Cove A $22.71 $11.79 $34.50 $20.63 $55.13 112,110 2,546,018 3,867,795 6,180,624 Syosset Owned Cleveland OH East Suburban A $13.03 $5.56 $18.59 $19.73 $38.32 112,110 1,460,793 2,084,125 4,296,055 Beachwood Owned Cincinnati OH Outer Counties A $8.86 $3.56 $12.42 $13.46 $25.88 127,040 1,125,574 1,577,837 3,287,795 Deerfield Township Detailed Property Breakout And Brokerage Estimates, Continued 31 Source: Equity Research Detailed Property Breakout And Brokerage Estimates, Continued 32 Source: Equity Research Net Lease Total Lease Type Metro State Submarket A/N Asking Expenses Rent TI Rent LTM Sq Ft Rent (A) Rent (A+E) Rent (A+E+TI) Club Name Owned Columbus OH Northwest A $9.32 $4.47 $13.79 $7.70 $21.49 109,045 1,016,299 1,503,731 2,343,377 Dublin Leased Columbus OH Southeast A $7.64 $2.24 $9.88 $11.35 $21.23 27,000 206,280 266,760 573,210 Pickerington Leased Columbus OH Northwest A $9.32 $4.47 $13.79 $7.70 $21.49 35,055 326,713 483,408 753,332 Upper Arlington Ground Leased Columbus OH Northeast A $8.57 $2.57 $11.14 $13.82 $24.96 98,047 840,263 1,092,244 2,447,253 Easton Owned Tulsa OK Southeast A $9.29 $3.57 $12.86 $14.96 $27.82 114,441 1,063,157 1,471,711 3,183,749 South Tulsa Owned Memphis TN East Mem./Germantown A $9.36 $3.94 $13.30 $12.94 $26.24 112,110 1,049,350 1,491,063 2,941,766 Collierville Sale/Leaseback Dallas TX Allen/Frisco/McKinny A $13.57 $5.07 $18.64 $17.94 $36.58 125,475 1,702,696 2,338,854 4,589,876 Allen Owned Houston TX West/Katy Freeway A $11.08 $4.14 $15.22 $13.50 $28.72 108,890 1,206,501 1,657,306 3,127,321 Cinco Ranch Owned Houston TX Northwest A $12.47 $5.11 $17.58 $10.62 $28.20 140,495 1,751,973 2,469,902 3,961,959 City Centre Houston Owned Houston TX Northeast/Humble A $9.13 $3.32 $12.45 $10.07 $22.52 50,085 457,276 623,558 1,127,914 Kingwood Owned Fort Worth TX Arlington A $8.89 $3.45 $12.34 $10.41 $22.75 129,155 1,148,188 1,593,773 2,938,276 Mansfield Owned Dallas TX Allen/Frisco/McKinny A $13.57 $5.07 $18.64 $17.94 $36.58 108,890 1,477,637 2,029,710 3,983,196 Plano/Life Time Athletic Plano Mortgage Austin TX Rnd. Rk./Wllmsn. Co. A $12.16 $4.34 $16.50 $12.92 $29.42 110,563 1,344,446 1,824,290 3,252,763 Austin Mortgage Houston TX FM 1960/Far NW A $11.58 $2.06 $13.64 $11.45 $25.09 108,890 1,260,946 1,485,260 2,732,050 Champions Mortgage Fort Worth TX Northeast A $11.28 $4.61 $15.89 $19.63 $35.52 108,890 1,228,279 1,730,262 3,867,773 Colleyville Mortgage Dallas TX Carrollton/SE Denton A $9.69 $3.81 $13.50 $12.59 $26.09 108,890 1,055,144 1,470,015 2,840,940 Flower Mound Mortgage Dallas TX Northeast A $8.61 $2.58 $11.19 $11.74 $22.93 108,890 937,543 1,218,479 2,496,848 Garland Mortgage Houston TX Northeast/Humble A $9.13 $3.32 $12.45 $10.07 $22.52 112,110 1,023,564 1,395,770 2,524,717 Lake Houston Mortgage San Antonio TX North/North Central A $11.83 $5.08 $16.91 $11.23 $28.14 112,110 1,326,261 1,895,780 3,154,775 Northwest San Antonio Mortgage San Antonio TX Northeast A $9.22 $4.73 $13.95 $14.12 $28.07 110,563 1,019,391 1,542,354 3,103,503 San Antonio Mortgage Austin TX South Austin A $13.87 $8.03 $21.90 $14.56 $36.46 109,045 1,512,454 2,388,086 3,975,781 South Austin Mortgage Houston TX SW/Ft. Bend County A $9.30 $3.22 $12.52 $10.41 $22.93 108,890 1,012,677 1,363,303 2,496,848 Sugar Land Leased Dallas TX Oaklawn A $14.68 $7.89 $22.57 $13.50 $36.07 62,000 910,160 1,399,340 2,236,340 Life Time Athletic Dallas Leased Dallas TX Farmers Branch A $10.29 $5.55 $15.84 $11.72 $27.56 68,982 709,825 1,092,675 1,901,144 North Dallas Owned Salt Lake City UT Southwest A $9.98 $4.69 $14.67 $16.27 $30.94 108,925 1,087,072 1,597,930 3,370,140 South Jordan Owned Suburban Virginia VA Suburban Fairfiax Co. A $17.45 $5.94 $23.39 $14.39 $37.78 67,467 1,177,299 1,578,053 2,548,903 Fairfax Owned Suburban Virginia VA Suburban Fairfiax Co. A $17.45 $5.94 $23.39 $14.39 $37.78 114,441 1,996,995 2,676,775 4,323,581 Reston Mortgage Suburban Virginia VA Suburban Fairfiax Co. A $17.45 $5.94 $23.39 $14.39 $37.78 90,956 1,587,182 2,127,461 3,436,318 Centerville Leased Suburban Virginia VA Loudoun County A $15.20 $5.57 $20.77 $15.80 $36.57 112,110 1,704,072 2,328,525 4,099,863 Loudoun County Thank You! 33 DISCLOSURE: I OWN SHARES OF LIFE TIME FITNESS DISCLAIMER: THIS PRESENTATION IS NOT A RECOMMENDATION TO BUY OR SELL SECURITIES. PLEASE DO YOUR OWN RESEARCH. EVERYTHING PRESENTED CONSISTS OF MY OWN OPINIONS AND DOES NOT REPRESENT ANY CURRENT OR FORMER EMPLOYERS.